Chapter 13 Treatment Of Secured Debts

In Chapter 13 cases secured claims are handled in one of two basic ways. The first, which we call the "cure and maintain" method, your past due payments on

secured debts are paid from your monthly bankruptcy plan payments ("through the plan"), and future payments (payments that come due after filing bankruptcy) are paid directly to the creditor ("outside the plan"). When the bankruptcy plan has terminated, you remain obligated to make any payments remaining due on these secured debts.

We call the other method the "strip-down/stretch-out/cram-down" method. This method is used either when the collateral is worth less than the amount of the debt, or when the number of payments left on a debt is less than the length of the plan. The following example illustrate the "strip-down/stretch-out/cram-down"method.

For example, if you have a car loan with 30 payments of $233.00. The interest rate is 12.25% and the pay-off on the loan is $6,000.00. The car has high mileage and is worth only $4,000.00. You can strip-down the creditor claim to the value of its collateral ($4,000.00), stretch-out the payments to 36 months and pay the present value of the claim at a reduced interest rate ("cram-down"). Such that the monthly car payments through the plan might be $127.20. The ability to "refinance" your secured loans through this second method permitted by Chapter 13 bankruptcy lets you reduce the monthly payments and sometimes is the only way to have enough cash flow to keep all of your property. BAPCPA places limitations on a Chapter 13 debtor’s ability to strip down certain secured debts. If the collateral is a motor vehicle acquired for personal use of the debtor incurred within 910 days (approximately 2.5 years) prior to filing the bankruptcy and the debt is a purchase money debt, then the debt cannot be stripped down to the value of the vehicles. The prohibition of strip-down applies to other collateral if the debt was incurred within one year prior to filing the bankruptcy.

Properly treating these “910-vehicle claims” is a very important aspect of your Chapter 13 plan. It is important to know the following:

1. When you purchased the vehicle.

2. Whether you purchased it for personal or business use.

3. Whether all of the debt relates to the purchase of the vehicle or whether some portion of the debt relates to paying off an old loan.

You must bring a copy of your vehicle purchase agreement and loan when you come to consult with us.

**The information you obtain at this site is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.**